Brewer Corporation Would Like to Institute an Activity-Based Costing System

question 172

Essay

Brewer Corporation would like to institute an activity-based costing system to allocate overhead to its products.The company's Shipping Department incurs costs of $750,000 per year and has nine employees.The Shipping Department has determined that three major activities that occur during the year.

Activity	Measure	# of People	Total Cost
Reviewing sales invoices	# of sales invoices	2	$175,000
Initiating shipping orders	# of shipping orders	3	$270,000
Making phone calls	# of phone calls	4	$330,000

During the year,60,000 phone calls were made in the department;25,000 sales invoices were reviewed;and 15,000 shipments were initiated.Product 101 required 300 phone calls,225 sales invoice reviews,and 175 shipping orders.Product 102 required 400 phone calls,500 sales invoice reviews,and 350 shipping orders.
a. Determine the amount of Shipping Department cost that should be assigned to each of these products.
b. Determine ShippingDepartment cost per unit if 2,500 urits of Product 101 and 5,000 units of Product 102 were sold chuing the vear.

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Definitions:

Basis Points

A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument, equal to 1/100th of a percent.

Corporate Bond

A debt security issued by a corporation to raise funds, promising to pay back the principal along with interest at a specified rate and schedule.

Yield To Maturity

The total return anticipated on a bond if it is held until its expiration date.

Par Value

The nominal face value of a bond or stock as stated by the issuer, often used to determine interest payments.